Compute the DuPont Disaggregation of ROE Refer to the balance sheets and income statement below for Facebook Inc. FACEBOOK INC. Consolidated Statement of Income For Year Ended December 31, $ millions 2018 Revenue $57,449 Costs and expenses   Cost of revenue 10,966 Research and development 11,884 Marketing and sales 7,846 General and administrative 5,062 Total costs and expenses 35,758 Income from operations 21,691 Interest and other income (expense), net 2,059 Income before provision for income taxes 23,750 Provision for income taxes 3,249 Net income $20,501   FACEBOOK INC. Consolidated Balance Sheet At December 31, $ millions 2018 2017 Current assets     Cash and cash equivalents $11,630 $8,079 Marketable securities 31,095 35,243 Accounts receivable, net 9,198 5,832 Prepaid expenses and other current assets 1,779 1,020 Total current assets 53,702 50,174 Property and equipment, net 24,683 15,332 Intangible assets, net 1,294 1,884 Goodwill 19,912 19,832 Other assets 2,576 2,135 Total assets $102,167 $89,357 Current liabilities     Accounts payable $820 $380 Partners payable 2,152 2,001 Accrued expenses and other current liabilities 5,509 2,892 Deferred revenue and deposits 1,758 98 Total current liabilities 10,239 3,760 Other liabilities 6,190 6,417 Total liabilities 16,429 10,177 Stockholders' equity     Common stock and additional paid-in capital 42,906 43,806 Accumulated other comprehensive loss (760) (227) Retained earnings 43,592 35,601 Total stockholders' equity 85,738 79,180 Total liabilities and stockholders' equity $102,167 $89,357   a. Compute return on equity (ROE).   Numerator Denominator ROE   Answer Answer     Answer Answer     b. Apply the DuPont disaggregation into return on assets (ROA) and financial leverage.   Numerator Denominator ROA   Answer Answer     Answer Answer       Numerator Denominator FL   Answer Answer     Answer Answer       Ratio Number   ROA Answer   FL Answer   ROE     ***ROE may be different from ROE calculation in part a due to rounding c. Calculate the profitability and productivity components of ROA.   Numerator Denominator PM   Answer Answer     Answer Answer       Numerator Denominator AT   Answer Answer     Answer Answer     d. Confirm the full DuPont disaggregation: ROE = PM × AT × FL.   Ratio Number   PM Answer   AT Answer   FL Answer   ROE

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Compute the DuPont Disaggregation of ROE

Refer to the balance sheets and income statement below for Facebook Inc.

FACEBOOK INC.
Consolidated Statement of Income
For Year Ended December 31, $ millions 2018
Revenue $57,449
Costs and expenses  
Cost of revenue 10,966
Research and development 11,884
Marketing and sales 7,846
General and administrative 5,062
Total costs and expenses 35,758
Income from operations 21,691
Interest and other income (expense), net 2,059
Income before provision for income taxes 23,750
Provision for income taxes 3,249
Net income $20,501

 

FACEBOOK INC.
Consolidated Balance Sheet
At December 31, $ millions 2018 2017
Current assets    
Cash and cash equivalents $11,630 $8,079
Marketable securities 31,095 35,243
Accounts receivable, net 9,198 5,832
Prepaid expenses and other current assets 1,779 1,020
Total current assets 53,702 50,174
Property and equipment, net 24,683 15,332
Intangible assets, net 1,294 1,884
Goodwill 19,912 19,832
Other assets 2,576 2,135
Total assets $102,167 $89,357
Current liabilities    
Accounts payable $820 $380
Partners payable 2,152 2,001
Accrued expenses and other current liabilities 5,509 2,892
Deferred revenue and deposits 1,758 98
Total current liabilities 10,239 3,760
Other liabilities 6,190 6,417
Total liabilities 16,429 10,177
Stockholders' equity    
Common stock and additional paid-in capital 42,906 43,806
Accumulated other comprehensive loss (760) (227)
Retained earnings 43,592 35,601
Total stockholders' equity 85,738 79,180
Total liabilities and stockholders' equity $102,167 $89,357

 

a. Compute return on equity (ROE).

  Numerator Denominator ROE
  Answer Answer  
  Answer Answer  

 

b. Apply the DuPont disaggregation into return on assets (ROA) and financial leverage.

  Numerator Denominator ROA
  Answer Answer  
  Answer Answer  

 

  Numerator Denominator FL
  Answer Answer  
  Answer Answer  

 

  Ratio Number
  ROA Answer
  FL Answer
  ROE  

 

***ROE may be different from ROE calculation in part a due to rounding

c. Calculate the profitability and productivity components of ROA.

  Numerator Denominator PM
  Answer Answer  
  Answer Answer  

 

  Numerator Denominator AT
  Answer Answer  
  Answer Answer  

 

d. Confirm the full DuPont disaggregation: ROE = PM × AT × FL.

  Ratio Number
  PM Answer
  AT Answer
  FL Answer
  ROE

 

 

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